Editing Interest (section)

===Rule of 78s===
{{main|Rule of 78s}}
In the age before electronic computers were widely available, flat rate consumer loans in the United States of America would be priced using the Rule of 78s, or "sum of digits" method. (The sum of the integers from 1 to 12 is 78.) The technique required only a simple calculation.

Payments remain constant over the life of the loan; however, payments are allocated to interest in progressively smaller amounts. In a one-year loan, in the first month, 12/78 of all interest owed over the life of the loan is due; in the second month, 11/78; progressing to the twelfth month where only 1/78 of all interest is due. The practical effect of the Rule of 78s is to make early pay-offs of term loans more expensive. For a one-year loan, approximately 3/4 of all interest due is collected by the sixth month, and pay-off of the principal then will cause the effective interest rate to be much higher than the APR used to calculate the payments.<ref name="bankrate.com">{{Cite web |url=http://www.bankrate.com/finance/auto/rule-of-78-watch-out-for-this-auto-loan-trick.aspx |title=Rule of 78 – Watch out for this auto loan trick<!-- Bot generated title --> |access-date=2016-11-28 |archive-date=2016-11-29 |archive-url=https://web.archive.org/web/20161129144118/http://www.bankrate.com/finance/auto/rule-of-78-watch-out-for-this-auto-loan-trick.aspx |url-status=live }}</ref>

In 1992, the [[United States]] outlawed the use of "Rule of 78s" interest in connection with mortgage refinancing and other consumer loans over five years in term.<ref>{{usc|15|1615}}</ref> Certain other jurisdictions have outlawed application of the Rule of 78s in certain types of loans, particularly consumer loans.<ref name="bankrate.com"/>